TIA Article – 091019

091019: Sensex has almost doubled money since last Diwali to this Diwali says every headline and this is evoking interests in many people to invest in market. Media will only talk what people like to hear and hence we generally do not find opinions aired in media to be contrarian to market trend. It is our own acumen which will decide what profits or losses we make in the market. Market is hovering around the levels we mentioned last month and is finding both support and resistance in the range. The broad range within which Sensex was expected to trade was 16600 – 17000 – 17600 and the whole of month has been spent around 17000 with no major movements on either side. The trend may continue for some more time as the next move will be based on the kind of quarterly results the companies are going to declare. Market is definitely reward those investing with a 3 to 5 years time horizon.

The biggest threat to market comes from geopolitical scenario. India is surrounded by hostile neighbors and the latest behavior of China on Arunachal Pradesh after Indian PM’s pre-election visit shows the motives of the country. On one hand China preaches not to interfere in a disputed area of A.P (which we believe is a part of India and China has no stake in it) and on other hand China is helping Pakistan execute various projects in PoK. The biggest challenge which South Asia is going to face in the coming future is the “Water” and countries like Pakistan and China are playing all tricks by occupying various parts of Northern India where from various Glaciers and Rivers pass by so that the path of these water ways can be re-directed for their own benefits. Any escalation in the geopolitical tension would not be good for stock markets. The behavior of China at this point of time looks as if it wants to go for a war with India, indirectly helping Pak. Sensex can melt on such situations.

Power Failure: Many power related IPO’s are hitting the market and most of them have lost investors wealth. Investors are advised caution while subscribing for IPO’s of such companies. Many of these companies have to set up things from scratch and the revenues are likely to commence few years down the line. Paying huge premiums for such IPO’s could lead to faster wealth destruction than broader market if indexes tend to correct.

Many promoters are taking advantage of the price run in the stocks and selling there own stakes in the company. Investors need to be careful about the companies where some good news regularly keeps coming out in the market but on the other side promoter stakes keep going down. Why should we buy a stock where the promoters themselves are not confident about the prospects?

The latest move by Reliance chairman in taking a huge pay cut in salaries should set precedence to rest of India Inc. Salaries of the top management in a company should not be fixed but should be based on the profits generated by them for the stake holders. When executives down the line can have pay based on targets, why not follow the same standards for others. There are many companies paying more than what the management deserves.

We have been recommending Banking sector since many months and the sector has delivered phenomenal returns. Investors can still remain invested in the sector but with very selective stocks. The IIP numbers and the auto numbers have yet again pointed towards a better future. Investors can also look at certain metal stocks which are still to catch up with the broader markets. Stock markets and Gold are moving in tandem and hence one of them needs to correct, though long term both may give good returns. We need to wait and see if Sensex can cross the 17600 with ease and then decide to enter.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this news letter. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources.